Chipmakers facing COVID-19 curve might heed Intel lesson

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Intel started diversifying chip products five years ago and finished 2019 in the black, while memory makers declined. (Intel)

The overall semiconductor industry faces yet another down year in 2020, mainly because of COVID-19 and disruptions to chip demand and the supply chain.

Lessons from a disastrous 2019 might offer a few insights about how companies can cope going forward. One clear lesson is that a company with a diverse chip portfolio, namely Intel, did much better than several companies with a heavy focus in one segment—memory.

In fact, Intel finished on top of a $428 billion market in 2019 with at least 10 major players with nearly $71 billion in revenue.

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Analyst firm Omdia called 2019 a year of “carnage” for the semi industry as revenues plunged nearly 12% globally, dropping nearly $57 billion compared to 2018. It was the worst annual performance for the chip industry since at least 2001 and worse than an 11% decline in 2009.

The big suppliers that focused heavily on the memory segment faired the worst in 2019, such as Samsung Electronics, SK Hynix and Micron that each posted revenue declines in the 30% range, Omdia noted. Overall memory chip revenue cratered by nearly 32% for the year.

While many companies were seeing disaster, Intel managed to see 1.3% growth in 2019. Omdia analyst Ron Ellwanger said that Intel was helped by a chip diversification strategy that took five years to build.

“Intel’s performance in 2019 represents a triumph for the company’s diversified business model,” Ellwanger said in a statement. “Once regarded as a PC-centric microprocessor supplier, Intel is now a diversified vendor of solutions ranging from logic chips to software to analytics.”

Intel’s diversification strategy “will continue to serve the company well—in good times and bad,” he said.

In fact, all indications are that 2020 will be another bad year for chips. VLSI Research reported on April 1 that over the prior eight weeks, unit shipments of chips had fallen 20% below a five-year average, with prices more than 20% higher.

Five years ago, the company refocused on various critical products and end markets, a strategy that meant Intel wasn’t dependent on a single product or application market that enabled Intel to “mitigate the effects of the massive market downturn of 2019,” Omdia said.

For example, Intel saw zero growth in its core microprocessor segment in 2019 while sales of logic chips rose 7%, Ellwanger said. Five groups at Intel cover five business segments: data center, internet of things including autonomous driving, 3D NAND flash for solid-state drive, programmable semis and PCS. Four out of five of those groups grew in 2019, he said. Mobileye, a small division focused on autonomous driving, saw revenues rise by nearly 26% in 2019.

Ellwanger said Intel’s larger data center group (DCG) and internet of things group (IoTG) were, however, the drivers of Intel’s revenue growth in 2019. DCG was 33% of revenues and grew by 2%, while IoTG was 5% of the total and grew by 10% throughout the year.

Intel’s DCG performance was more remarkable, Omdia said, because the broader market for data center apps fell by 16% for the year, the largest decline in a decade. Intel had a higher average selling price for its data center products, which allowed the company to overcome reduced unit sales, Omdia said.

According to Omdia, Intel finished 2019 in the top spot with $71 billion in revenues, replacing Samsung in that position. Samsung finished second ($52.5 billion), SK Hynix finished third ($23 billion), Micron finished fourth ($20 billion), Broadcom finished fifth ($18.2 billion), Qualcomm finished sixth ($14.4 billion), Texas Instruments finished seventh ($14 billion), STMicroelectronics finished eighth ( $9.55 billion), nVidia finished ninth ($9.5 billion) and Infineon Technologies finished tenth ($8.9 billion).

Sony Semiconductor Solutions finished 13th after seeing 31% growth in 2019, after finishing in 17th rank in 2018.

Sony had a lead position in CMOS image sensors, chips used in cameras, including smartphones, Ellwanger said. Since smartphones employ multiple cameras, demand for Sony’s consumer-quality sensors is “soaring,” he added. Smartphones with three cameras made up 31% of global smartphone shipments in the last three months of 2019, which helped drive a 23% jump in global CMOS sensors for the year.

2019 also featured a plunge of 31.6% in memory chip revenues, with DRAM down by 37% and NAND flash down by 24.5%. Wireless communications semiconductors dropped by 13% for the year, the largest decline in 10 years. Omdia said mobile sales were down because consumers delayed buying phones as they waited for “true 5G performance.” 

AI chipmakers saw a 7% revenue decline for 2019, the biggest drop in more than a decade.

RELATED: With COVID-19, IT spending to decline by 2.7%, IDC says

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